Gold - Is Confidence Evaporating?

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The innumerable factors that have taken gold to a fourfold increase over the last years remain very much in place. Two of the major drivers - systemic risk and inflation - are more of an issue since the beginning of 2008.

...The innumerable factors that have taken gold to a fourfold increase over the last years remain very much in place - and more so. Some factors weigh less heavily but they are more than compensated by others (too many to list and well documented elsewhere) that have grown larger still.

Picking two of the major drivers - systemic risk and inflation - are these less of an issue or more of an issue since the beginning of 2008? We take the opinion that it remains very much the latter.

Estimates of sub-prime losses have risen by nearly 50 percent according to the IMF - and we are still dealing with the first order effects - how well the corporate and private sector copes with illiquidity in lending is yet to be felt. Inflation - in the US nominally at 4.6% if you look at the CPI which now ignores anything that matters such as food and energy. China meanwhile is nudging inflation rates of 9% and India 7.6%. US money supply is massively expansionary (the US stopped publishing the broad money supply measure M3 in March 2006 strangely) but we can gauge world FX reserves and these have increased 17% annually over the last 10 years...

I remain resolutely bullish for gold and see no reason for changing my view at this time. The fly in the ointment for gold is the manner by which it is currently behaving - a bit like ‘old gold' steady constructive rise then big smack down. Unfortunately, this price action can weigh heavily upon the confidence of those that might otherwise view gold positively.

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